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Considerations for making a profit with stocker cattle

Jeff Lehmkuhler for Progressive Cattleman Published on 25 February 2019
Bidding on cattle

The Southeast is home to more than 7.3 million beef cows (USDA 2018) and likely marketed more than 4.6 million feeder calves in 2018.

The cow-calf industry in this region provides an opportunity for stocker and backgrounding operations to co-exist. Tight margins place these enterprises at higher risk, and finding mechanisms to add value is essential.

Aggregation is likely the greatest opportunity for these enterprises to capture financial gains. Kentucky’s 1 million beef cows are spread out over some 38,000 beef operations. These figures reveal the average beef cow-calf operation manages slightly fewer than 30 cows.

The average weight spread of a calf crop will exceed 200 pounds between the lightest and heaviest calf, resulting in multiple lots at marketing based on weights, hide color and sex. It would not be uncommon for 28 calves to be separated into four or more marketing groups.

Arkansas and Wisconsin feeder cattle market studies reported 94 percent and 82 percent of feeder cattle lots contained five or fewer calves. Market research clearly demonstrates fewer calves in a group at marketing bring less price than larger, uniform groups that approach 50,000 pounds. As simple as it seems, the ability for stocker operations to sort cattle into more uniform type and weight marketing groups is a considerable value addition mechanism.

Calf type

In a 2010 NAHMS survey, 60 percent of feeder calves marketed had not been weaned prior to marketing. A study of feeder cattle sold in Arkansas markets reported 14 percent of lots were bulls, and only 3.3 percent of all lots sold were preconditioned calves. Only 5 percent of lots marketed in a Wisconsin market dataset were announced as being weaned, illustrating a similar trend in the Midwest. Managing calves through the weaning phase is another area the stocker and backgrounding enterprises capture value.

There is great risk to lose money if calves are not managed properly leading to high morbidity and mortality. Thus, managers must be skillful at identifying sick calves and be knowledgeable on treatment regimes.

Purchasing bull calves has been an avenue many stocker and backgrounding programs have used to secure profit margins. Bulls typically sell for a discount in relation to steers, though this is not always the case. The discount offered for bulls is a result of reduced performance after castration compared to steers. Additionally, these calves tend to have greater morbidity and mortality rates compared to steers.

These factors are built into the price offered at purchase. However, following recovery from castration, these now-steers will perform well and be marketed having gained in value, bringing a steer price. This is a basic management value-capturing opportunity.

Some stocker operations also find value in heifer procurement. Due to lower performance and feed conversion rates, heifers are discounted compared to steers. Additionally, many stocker operators will purchase heifers for the opportunity to diversify marketing options in the future. A steer only has one market: the feedlot. A heifer could be developed into a replacement female or be marketed to a feedyard. During years of herd expansion, stocker operations may choose to develop and market replacement heifers, as they receive a greater value over a feeder heifer.

Last, upgrading can be a mechanism of capturing value. This relates to a USDA feeder calf grading system of muscling. The numeric system is 1 to 5, with heavy muscled calves receiving a 1 and very light-muscled, dairy-type calves receiving the higher values of 4 to 5. Light-muscled feeder calves receive a significant price discount due to the anticipated lower meat yield.

In many instances, the genetics are present for improved muscling but not expressed. Malnutrition often is the cause for lighter muscling. Following a period of increased nutritional plane, these feeder calves will increase in muscling score by a point, improving their market price.

Health

Unweaned, lightweight calves are a higher risk category from a health perspective. Early detection of sickness is key. In many instances, bovine respiratory disease (BRD) is the major challenge operators must manage. However, this is a multi-faceted disease that includes viral and bacterial pathogens along with nutritional status. Many operations may observe treatment rates of 20 to 50 percent.

To manage health challenges, the manager will need to consult with their local veterinarian. In doing so, the veterinarian and producer can establish a valid patient-client relationship. This process should include development of preventative health protocols. These protocols will include vaccination products for respiratory disease, clostridial diseases, internal and external parasites, and other preventative health procedures.

Additionally, the development of treatment protocols for BRD, pinkeye, foot rot, bloat and other disorders should be established. The veterinarian is an often-overlooked tool for improving profits in a stocker enterprise.

Forage management

Likely the simplest forage management consideration to improve profitability of a stocker operation is to ensure adequate forage is available. Appropriate stocking rates will need to be managed to ensure forage doesn’t limit intake and, subsequently, performance. Stocking rate will vary depending on size of the animal, forage species production potential, soil fertility, soil moisture and other factors.

Dilution of fescue infected with the wild-type endophyte is another management consideration. A simple recommended pasture renovation for diluting fescue is the interseeding of clover. Recent studies indicate the clover effects on animal performance may not be solely due to dilution but could also be related to other physiological responses.

Technology

As with many other agricultural enterprises, technology allows for the opportunity to improve profit margins. Examples include growth- promoting implants, ionophores, eartags that monitor temperature/movement, drones and other items. Growth-promoting implants and ionophores are likely the two most heavily researched technologies available. We are in an exciting time to see electronic technology developments for this industry.

Buy them right

I have often heard it said the money is made in the stocker enterprise at the time the cattle are purchased. Essentially, this refers to the industry being a thin-margin business. Using futures prices and input costs, one can work out a budget. This budget process will identify the purchase price to offer for calves. Strict adherence to the purchase price will increase the opportunity for making a profit.

I was once told by a farmer-feeder after mentioning breakeven prices on a set of feedlot steers, “I don’t do anything to break even. If I can’t make money doing it, why would I work so hard to make nothing?” This was early in my career but ingrained as a cornerstone. When working through budgets, include a realistic return per head.

The stocker industry can be very rewarding, both from a lifestyle and financial stance. However, this higher-risk business is not suited for everyone. Contemplate your management strengths and determine if this industry is the right choice for you.  end mark

ILLUSTRATION: Illustration by Kristen Phillips.

Jeff Lehmkuhler
  • Jeff Lehmkuhler

  • Extension Beef Cattle Specialist
  • University of Kentucky
  • Email Jeff Lehmkuhler

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